FROM A GOLD STANDARD TO A GOLD EXCHANGE STANDARD 489
“Council Bills,” encashable into rupees at the Government Treasuries in India, thereby providing the rupee currency in India. When gold is wanted the Government of India sells what are called “Reverse Councils “on the home Treasury in London, which are encashed by the Secretary of State, thereby providing gold for foreign remittances. The result of the sale of “Council Bills” and of the “Reverse Councils” on the two funds has been to transform the Indian currency from being a gold standard with a gold currency, as desired by the Fowler Committee, into what is called a gold standard without a gold currency, as wished for by Mr. Lindsay.
This system which has grown up in place of the system originally contemplated by the Government of india is called the gold-exchange standard. Whatever that designation may mean it was not the plan originally contemplated by the Government of India in 1898. How the departure came about we shall deal with in another place. Here it is enough to state—one may also say necessary, for many writers seem to have fallen into an error on this point— that the Government did not start to establish a gold-exchange standard. Rather it was contemplating the establishing of a true gold standard, which, however inadequately understood by the men who framed it, was in essential aggreement with the principles governing the English Bank Charter Act of 1844.
What are we to say about the new system ? The Chamberlain Commission, while reporting that there was a departure from the ideal of a gold standard with a gold currency, observed* :—
“But to state there has been this departure is by no means to condemn the action taken, or the system actually in force ……”
Now why not ? Is not the system the same as that proposed by the Government in India in 1878 and condemned by the Committee of 1879 ? It is true the arguments urged against that plan by the Committee of 1879 were not of much weight.† Nonetheless the plan was essentially unsound. The material point in the introduction of a gold standard must be said to be one of limitation on the volume of rupees, and it is from this point of view that we must judge the plan. But there was nothing in the plan of 1878 that could be said to have been calculated to bring that about. Far from putting any limitation on the volume
- Report, Par, 46 † See supra, Chap. IV.